Friday, August 17, 2018
I Just Became Debt-Free…Now What???
Without trying to sound cheesy, I get super excited when I hear about someone becoming debt-free. The pain, stress, heartache and just sheer lack of fun that debt provides make becoming debt-free pure ecstasy. I remember forking over 20K cash to the bank to pay off the student loan. I almost puked as the lady counted it. It took about 2 weeks for me to feel alright about it, but then when the next bill came in and it said Amount Owing: $0, it hit me. The final debt for me was to a family member. Sorry, Auntie, your interest rates were too low so you’re last. She had all but written it off, but I was super happy when I handed her the cheque. The day after that I thought about my next move. I am completely debt-free, so now what? I hear what some of you might be saying, Party Time! Call me a nerd, but it was business as usual for me once I became debt-free. Today I have some tasks for you to accomplish for when you become debt-free. I look at getting out of debt like breaking out of jail: Don’t celebrate outside the fence, get a few counties over before your victory dance.
Let’s face it, debt doesn’t come out of nowhere. Something happened, or many things happened, to put you into debt. That doesn’t mean that they were all your fault, it just means you must be aware of them. It could have been a loss of job, or you got sick, or you caught the online shopping bug. Either way, it is important to understand what put you in that hole, so you can negate it moving forward. Debt, like wealth, is cyclical. That means it perpetuates itself, bringing in more debt. You must know the root causes of it or else you could fall victim to it again. Take some time to breathe and reflect on your debt journey.
Plan to stay debt-free
You have thought about what put you in and kept you in debt. Now is the time to devise a plan to never get into debt again. Was it the loss of a job? If so, make sure your employment is stable moving forward. Was it a shitty relationship that threw you for a loop? Make a list of the financially toxic people in your life. Was it an emergency that came up that spiraled you out of control? Making sure you have emergency savings in place is key to avoid that situation. When you are free from debt, you must look back at the debt with such hate that you will never get back into it again, or you will get into it again. Hate to use the jail reference again but repeat offenders obviously didn’t hate jail that much. Hate debt with a passion.
Create a new goal
Goals are vital to your success. Getting out of debt is the ultimate goal and it takes up all of your mental energy while you are taking it down. Now that you are out of debt you need a new goal. You may think you deserve a vacation now that you are debt-free. While I disagree, I do have some advice for you. Make having a regular vacation a goal of yours. Save up for it over the course of the year and then go. Save for an emergency fund so you don’t get crushed by unexpected events. Aim for getting a new (used) car. The goal of getting out of debt kept you on track so don’t let not having another goal let you fall back into old ways.
Maintain a level of intensity, at least for a bit
The sheer force of will and determination got you out of debt. Oddly, I kept plowing through an intense level of saving since I became debt-free. The terror of being in debt made me want to get as far away from it as possible. I crossed county lines and ran for the border baby. Now I am not saying carry on your saving intensity for years, but at least go a little further after you become debt-free. You were used to beans and rice for a few years, what’s a few more months to build up emergency savings. With a newly level bank account and a new set of goals, a strong level of commitment is needed. Don’t lose that momentum when you are now at your peak level of performance.
Monitor everything moving forward
You more than likely put every dollar you had every month into getting out of debt. Now that you have all this “free money” you need to be vigilant. Utilize a budget moving forward to direct your money is the best places possible. You must remember that the new-found wealth you have is not free money, it’s your money. It was also your money paying off the debt. Circumstances lead you into debt and it took your money so from now on, take care of your money. Watch your spending, be cognizant of leakage, address issues as they arise. At the end of every month I know if I blew it a little. I then chill out the next month. There is nothing wrong with making money mistakes, like going out too many times in a month. Correct the wrong by easing up the next month or you will find yourself in the debt prison once again.
Truly understand your whole financial picture
How did being in debt affect your credit? I know mine was shot while in debt and needed some repair after that. What about your savings levels, assets, and financial future? I’m guessing you didn’t contribute to retirement savings while paying off debt, which is not a bad thing. Take some time to evaluate your whole financial picture. I always get blown away when I have clients that have no idea when their house will be paid off, or how much is on their credit card. You should know these numbers well. It is not knowing these numbers that help you get into debt in the first place. Evaluate your net-worth, your job situation, short, medium and long-term goals as well as your savings levels. Use this moment of clarity to survey the landscape.
Emergency funds and protection
I spoke about having an emergency fund to not get into debt again. While having one is key to surviving small things that come up in life like a broken water heater, income protection is key to surviving the big events. I am going to say something you might not like. You got lucky to get out of debt. Yes, hard work and determination got you out of debt, but luck was involved too. Not getting sick or injured during that process was a blessing. Not losing a loved one during that process was a blessing. Not losing your job during that process was a blessing. Maybe those terrible events are what caused the debt to begin with, or did happen part way through. Either way, it magnifies the need for adequate income protection. Evaluate your disability and critical illness coverage to see if you will be okay should the worst happen. And for God’s sake, get some life insurance. It’s cheap and easy and nothing breaks my heart more than a widow being left debts from her dead husband.
Have fun, but don’t overdo it
You DO deserve a bit of fun now that you are debt free. I am a bit of a hardass, so I would say a nice dinner is good enough, but you might think a vacation is worthwhile. Now that you are debt-free, enjoying your extra money is important, but overdoing it will hurt you, bad. Be strategic and plan your fun moving forward. It won’t make it less fun if you plan it. It will make it more doable and less stressful when the VISA bill comes. Living within your means is not one way to live, it’s the only way to live. I look at getting debt-free the same way I look at feeding your children. Do you want a reward for doing what you should have been doing all along? Yes, I am a hard ass, but it’s true. Reward yourself but stay level or else you know what happens.
Debt-free is the place to be, but it means nothing if you do it again. Being debt-free is a mentality more than physical actions. It is a passion of mine and should be one of yours too. There is nothing better than a trip to the Bahamas, except a trip to the Bahamas, paid with cash. Just saying.
“Rather go to bed without dinner than to rise in debt.” – Benjamin Franklin
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